Paulson: Congress Has No Authority Here
"As with any contract, the parties to the agreement may modify the covenants by mutual agreement only.''
>
Hank Paulson's God Complex just got bigger. The Director of Government Bailouts, and head of the Socialism Departmant at Treasury has informed Congress to back off his turf.
"All your legislation belongs to us!"
Now, last I checked, it was Congress that had the power of authorization disbursements, and that Treasury does not have the authority to spend 5.3 trillion dollars. Comrade Paulson does not seem to understand the way the different branches of government work in the United states, and is apparently unfamiliar with a little parchment called the Constitution. Perhaps we can get Ron Paul to explain how these things work to our friend from the People's Republic of Goldman.
Bill King: "Hank is trying to euchre the market into believing that if Congress tries to change the law, the executive branch would then sue Congress for breach of contract. Good luck with that at the Supreme Court." Nice try, comrade, but no such luck.
The issue here is authorization. I cannot write a contract to sell you home, car, etc to a third party, without your authorization. Otherwise, its fraud. The party with the legal title and ability to convey those goods or services on the one side, or indebtedness or money on the other side of the transaction requires authorization.
The original Bazooka legislation did not give Treasury a blank check to do whatever they want. A decision, for example, to add Fannie and Freddie to the budget "wouldn't automatically translate into explicit government backing for the companies' combined $1.7 trillion in unsecured debt and $3.5 trillion of mortgage guarantees." To do so requires Congressional legislation to change the companies' legal status. That's where any of the changes -- like reducing the absurd pay packages for the current idiots running Fannie/Freddie -- would come in.
Here's Bloomberg's excerpt:
"The U.S. Treasury said Fannie Mae and Freddie Mac's debt and mortgage-backed securities are "protected'' by the government's stock purchase agreement that put the mortgage finance companies under federal control.
"The holders of senior debt, subordinated debt, and mortgage-backed securities issued or guaranteed by these GSEs are protected by the agreement without regard to when those securities were issued or guaranteed,'' the Treasury said today, referring to the so-called government-sponsored enterprises.
The federal government took over the two largest sources of money for U.S. home loans on Sept. 7, placing them under conservatorship and establishing procedures for buying their senior preferred stock if liabilities exceed assets.
The federal takeover didn't address whether the companies' $5.2 trillion in debt should be included in the budget, or whether it carries an explicit government guarantee. In an interview this week with Bloomberg Television, Treasury Secretary Henry Paulson cited "incongruities'' in the law, saying "we should be clear, is there a government guarantee or isn't there?''
I do not believe Treasury has purchased any stock yet, but that can change in an instant. Long live Bailout Nation!
>
Sources:
FACT SHEET: TREASURY SENIOR PREFERRED STOCK PURCHASE AGREEMENT
U.S. TREASURY DEPARTMENT OFFICE OF PUBLIC AFFAIRS
http://www.treas.gov/press/releases/reports/pspa_factsheet_090708%20hp1128.pdf
Treasury Says Fannie, Freddie Accord Protects Debt
Rebecca Christie
Bloomberg, Sept. 11 2008
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=alcVIaV9pLoc
Friday, September 12, 2008 | 07:14 AM | Permalink
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Comments
"All your legislation ARE belongs to us. You have no chance make your time" etc.
FTFY
Barry! Long time no write. Keep fighting the good fight.
Posted by: Byno | Sep 12, 2008 7:48:27 AM
Byno! you beat me to the correction"
"All your legislation are belong to us!"
I'll add:
"I, for one, welcome our new Treasury overlords"
Posted by: JAN | Sep 12, 2008 7:59:21 AM
Paulson is an Constitutional expert. He found all the missing pages as he was cleaning up his office. He discovered that the Treasury Sec. is the head of M & A for the federal government.
Posted by: John | Sep 12, 2008 8:14:13 AM
Well, This morning, Ford is up in the futures, after they announced Federal Lending to the Auto Industry of up to $25,.......
couldn't remember how many zero's because I'm not fully awake. I want to know where the line forms - I'm ready to get in line, as is every other entity.
Posted by: la grande poussée | Sep 12, 2008 8:18:50 AM
I don't know about you guys and gals, but lately I have been thinking a lot about what it must have felt like as a Jew (or any free and clear thinking German) during the last stages of the Weimar Republic. And unlike many of you, I was a Republican.
This is scary stuff.
Posted by: CNBC Sucks | Sep 12, 2008 8:27:11 AM
BR:
Thanks for the belly laugh! That is (or should that be are?) some funny sh!t.
Posted by: Unscripted Thoughts | Sep 12, 2008 8:27:37 AM
A little irony here--I looked up the contract clause of the US constitution to see if it actually did what Paulson says it does but it only applies to the states--but look why it was included in the constitution here:
http://en.wikipedia.org/wiki/Contract_Clause
Quote from Wikipedia:
The framers of the Constitution added this clause due to fear that states would continue a practice that had been widespread under the Articles of Confederation—that of granting "private relief." Legislatures would pass bills relieving particular persons (predictably, influential persons) of their obligation to pay their debts. It was this phenomenon that also prompted the framers to make bankruptcy law the province of the federal government.
During and after the Revolution, many states passed laws favoring colonial debtors to the detriment of foreign creditors. Federalists, especially Alexander Hamilton, believed that such a practice would jeopardize the future flow of foreign capital into the fledgling United States. Consequently, the Contract Clause, by insuring the inviolability of sales and financing contracts, encouraged an inflow of foreign capital by reducing the risk of loss to foreign merchants trading with and investing in the former colonies. (See generally James W. Ely Jr., The Guardian of Every Other Right (Oxford Univ. Press 1998).)
endquote
The more things change . . .
Posted by: MikeBC | Sep 12, 2008 8:40:18 AM
Are we becoming USSA (United Socialist States of America)?
Posted by: Sam Jacob | Sep 12, 2008 8:50:26 AM
> Are we becoming USSA (United Socialist States of America)?
Yes and perhaps even USSA banana republic if McSame manages to pull off the ruse
Comrades Bush, Paulson and Bernanke Welcome You to the USSRA (United Socialist State Republic of America)
http://www.rgemonitor.com/roubini-monitor/253529/comrades-bush-paulson-and-bernanke-welcome-you-to-the-ussra-united-socialist-state-republic-of-america/
Right on the heels of nationalization of Fannie and Freddie we now get these assclowns helping Lehman to further the USA into the USSRA (the United Socialist State Republic of America).
Socialism is indeed alive and well in America; but this is socialism for the rich, the well connected and Wall Street. A socialism where profits are privatized and losses are socialized with the US tax-payer being charged the bill of $300 billion ( and growing even more ).
Vote McSame if you want to turn America into the USSRA banana republic.
Vote Obama if you want the United States of America.
Posted by: km4 | Sep 12, 2008 8:59:59 AM
Constitutional law is the study of foundational or basic laws of nation states and other political organizations. Constitutions are the framework for government and may limit or define the authority and procedure of political bodies to execute new laws and regulations.
http://en.wikipedia.org/wiki/Constitutional_law
Obama is a subject matter expert and respects it
McCain needs lackeys to interpret for him but will likely abuse it like Bush
Biden understands and respects it
Palin is clueless and an abuser
Posted by: km4 | Sep 12, 2008 9:07:37 AM
km4, that's a print out and clip out and save in the wallet.
Posted by: christofay | Sep 12, 2008 9:12:57 AM
Y'all be careful with them Wiki references. I have it on good authority that Barry is very anti-Wiki, because he has discovered how 'they' are financing their nefarious plot to run down our grate nation. I seed it over on Kedrosky's page.
http://paul.kedrosky.com/archives/2008/09/11/tracking_lehman.html
Posted by: tulsatime | Sep 12, 2008 9:14:51 AM
tulsa time, a good Clapton tune
Posted by: christofay | Sep 12, 2008 9:17:26 AM
I don't think that Paulson's actions ARE unconstitutional. As far as I know, Fannie and Freddie as GSEs were backed by the US Government. Legislation MUST have been passed at some point by congress decades ago that gave the Treasury the power to act in this way if necessary.
Posted by: One Salient Oversight | Sep 12, 2008 9:20:15 AM
Even CNBC is now asking where the line forms.
We have had 8 years of people who did not understand the separation of powers and almost as long with a Congress who did not. The Dems may, but they still seem to acquiese any time the word "terrorism" is used.
All this is the result of an "MBA president"; he may know business (although his track record in the private sector does not show it), but he has no idea of the philosophy of our government.
Nixon, as crazy/bad as he was, still had a basic respect for the Constitution. He violated it, but at least felt guilty.
CNBC saying the spread on Lehman stock is $1 on a $4 stock.
Posted by: Mike in NOLa | Sep 12, 2008 9:31:07 AM
Hey, if Bush/Cheney can claim "unitary executive" why can't Paulson....after all Congress has allowed the concept of "unitary executive" to go unchallenged for almost 8 years.
Posted by: grumpyoldvet | Sep 12, 2008 9:35:32 AM
What makes our situation all the more dire is that nearly all players are hedging on the extent of the damage already done.
It's like the game of L!ar's P0ker, where all players l!e but at the same time know all the other players are lying as well. What makes this game fun is that it ends quickly as all players must see who's bluffing and who was actually holding their bet.
In this global game of L!ar's P0ker now under way, true...everyone was lying;however, NO ONE is actually holding the cards to support their bet. That would be the Treasury, the Fed and the US Congress.
Lastly, I read somewhere this morning where the question was asked, "Why is debt protected, while equity is sacrificed?". Since our entire way of life is now built on debt, if the risk to holding US debt starts increasing significantly...we are all dead. That's is the real reason why debt is protected at all cost. When you are looking at supporting $10T to $11T in debt, single digit moves in rates (basis points) mean BIG bucks.
Posted by: BG | Sep 12, 2008 9:35:55 AM
I believe that should read: "All your legislation are belong to us!"
:-)
Posted by: cuzin chris | Sep 12, 2008 9:41:13 AM
Vote "Pit Bull" Palin and stop them Ruskie Commies before them dominoes is falling down some more.
God Save the Queen. Amen.
Posted by: Winston Munn | Sep 12, 2008 9:48:43 AM
Somebody set up us the bailout
Posted by: One Salient Oversight | Sep 12, 2008 9:50:39 AM
I for one am GLAD to see this kind of frustration setting in! Lets me know that sides are beginning to form and from arguements/stubborness/fighting the truth and best action (not just a quick fix) will happen.
Posted by: Rob P | Sep 12, 2008 9:52:44 AM
Trustees of Dartmouth College v. Woodward, 17 US 518 (February 2, 1819):
"If these are not essential changes, impairing the rights and authorities of the trustees, and vitally affecting the interests and organization of Dartmouth College, under its old charter, it is difficult to conceive what acts, short of an unconditional repeal of the charter, could have that effect. If a grant of land or franchises be made to A., in trust for special purposes, can the grant be revoked, and a new grant thereof be made to A., B. and C., in trust for the same purposes, without violating the obligation of the first grant? If property be vested by grant in A. and B., for the use of a college, or an hospital, of private foundation, is not the obligation of that grant impaired, when the estate is taken from their exclusive management, and vested in them in common with ten other persons? If a power of appointment be given to A. and B., is it no violation of their right, to annul the appointment, unless it be assented to by five other persons, and then confirmed by a distinct body? If a bank or insurance company, by the terms of its charter, be under the management of directors, elected by the stockholders, would not the rights acquired by the charter be impaired, if the legislature should take the right of election from the stockholders, and appoint directors unconnected with the corporation? These questions carry their own answers along with them. The common sense of mankind will teach us, that all these cases would be direct infringements of the legal obligations of the grants to which they refer; and yet they are, with no essential distinction, the same as the case now at the bar.
In my judgment, it is perfectly clear, that any act of a legislature which takes away any powers or franchises vested by its charter in a private corporation, or its corporate officers, or which restrains or controls the legitimate exercise of them, or transfers them to other persons, without its assent, is a violation of the obligations of that charter. If the legislature mean to claim such an authority, it must be reserved in the grant. The charter of Dartmouth College contains no such reservation; and I am, therefore, bound to declare, that the acts of the legislature of New Hampshire, now in question, do impair the obligations of that charter, and are, consequently, unconstitutional and void."
>A case pretty close to being on point re Paulson that was one of the Supreme Court's first interpretations of the contracts clause.<
Posted by: Donkei | Sep 12, 2008 9:59:33 AM
"Somebody set up us the bailout!"
HA!
Posted by: Blackhalo | Sep 12, 2008 10:02:56 AM
Donkei that's a case about state legislative action not federal government action.
Posted by: MikeBC | Sep 12, 2008 10:08:08 AM
Can any of the readers out there tell me if the yield on the Freddie and Fannie Notes were significanty higher then the Treasury yield at the time of a particular tissuance/Series? And, if they were, why? Shouldn't they have been only a couple of basis points over Treasuries? Afterall, supposedly there was minimal risk because they were supposedly backed by the full faith and (voodoo) credit of the USG.
I'm just wondering as a regular Joe.
Also, I found on the Internet at the Fannie Mae web site a .PDF file of the Indenture/Prospectus for Fannie Mae Investment Notes Universial Debt Facility and on the first page in bold black letters it says, "The Notes, together with interest thereon, are not guaranteed by the United States and do not constitute a debt or obligation of the United Ststes..."
Given that, why is the USG expected to pay for the bad investment decisions of China, Japan or Russia, or some individual who under the same circumstances if the relationship were reversed would say, "Tough. You lose. The risk of loss was clearly laid out in the Prospectus and if you didn't make it your business to read it, it sucks to be you."
Will this turd Paulson send me a check for the money I lost in Armstrong World Industries Prefered when they filed Chap. 11 to avoid Asbestous litigation?
I'm just askin'.
Posted by: Clint Golden | Sep 12, 2008 10:16:05 AM
